A new Forbes report on digital assets has found that half of all reported trading volume on bitcoin is likely to be fake or non-economic. The report downgraded the daily volume for the bitcoin industry by 51 percent to $128 billion on June 14, from a $262 billion volume derived from multiple sources.
According to Forbes, this is in recognition of the rampant inflation of trading volumes that many exchange operators engage in.
“If reported trading volumes for bitcoin, the more regulated and closely-watched crypto asset around the world, are untrustworthy, then metrics for even smaller assets should be taken with even greater grains of salt,” the report noted.
Researchers like Bitwise made similar findings in a 2019 report where it noted that although the bitcoin industry reports roughly $6 billion in daily volume, the vast majority of that is fake and or non-economic wash trading.
Wash trading refers to entering into or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position, according to the US Commodity Futures Trading Commission.
Forbes that the reason some traders engage in wash trading is to inflate the trading volume of an asset to give the appearance of rising popularity. There are numerous cases where trading bots execute these wash trades in tokens, increasing volume, while at the same time insiders reinforce the activity with bullish remarks, driving up the price in what is effectively a pump and dump scheme. Crypto exchanges also benefit as the fake trades make them appear to have more volume than they actually do.
The Forbes report studied 157 crypto exchanges across the world where it found that only 21 crypto exchanges generate $1 billion or more in daily trading activity, while 33 exchanges recorded volume between $200 million and $999 million across all contract types including spot, futures, and perpetuals. Perpetual futures or perpetual swaps are futures contracts that do not require investors to roll over their positions. They are also seen as cash-settled and differ from regular futures in that they lack a pre-specified delivery date, and can thus be held indefinitely without the need to roll over contracts as they approach expiration.
Binance leads the perpetual futures market with a 27 percent market share, followed by FTX. Binance however shares the top position in spot bitcoin with FTX and OKX.
“At its best, trading volume is one of the most measurable signs of investor interest, but it can be easily manipulated to convince novice investors that it has much more demand than it actually does,” the report noted.